Reallocated sector means that your harddrive found a bad sector, and swapped it with a 'reserve pool' of sectors. After this swap, the medium should be free of bad sectors to the operating system. Its a technology designed to make failing sectors on the harddrive cause no trouble for the operating system because it'll just swap a new one whenever it finds that a particular sector is becoming weak (because it takes more time to read that sector than normal).

So "replace that drive now" may be an overreaction. You do need to make sure you have proper backups however, but a drive with reallocated sectors could last for years in good operation.

One exception to this is, if the number rises continuously, like every day it jumps a few. Then you've got a failing harddisk because once the 'reserve sector pool' runs out it cannot hide the bad sectors anymore from the operating system. And remember, a drive can only reallocte a sector if you write to it, or it can still be read from. So sometimes its necessary to do a zero-write on the drive to be able to let it swap the sector. Should the number not increase after a zero-write, your harddrive found no new potentially bad sectors that it wants to swap.